XML 38 R23.htm IDEA: XBRL DOCUMENT v3.24.1.1.u2
INCOME TAXES
 12 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The domestic (Singapore) and foreign components of income from continuing operations before income taxes were comprised of the following:
Fiscal Year Ended March 31,
202420232022
(In millions)
Domestic$(165)$99 $352 
Foreign831 708 612 
Total$666 $807 $964 

The (benefit from) provision for income taxes from continuing operations consisted of the following:
Fiscal Year Ended March 31,
202420232022
(In millions)
Current:
Domestic$3 $6 $3 
Foreign161 117 133 
164 123 136 
Deferred:
Domestic(1)1 — 
Foreign(369)— (44)
(370)1 (44)
(Benefit from) provision for income taxes$(206)$124 $92 
The domestic statutory income tax rate was approximately 17.0% in fiscal years 2024, 2023 and 2022. The reconciliation of the income tax expense (benefit) from continuing operations expected based on domestic statutory income tax rates to the expense (benefit) for income taxes included in the consolidated statements of operations is as follows:
Fiscal Year Ended March 31,
202420232022
(In millions)
Income taxes based on domestic statutory rates$113 $137 $164 
Effect of jurisdictional tax rate differential68 52 (97)
Change in unrecognized tax benefit(10)(7)12 
Change in valuation allowance(685)(290)(135)
Foreign exchange movement on prior year taxes recoverable(1)4 (9)
Liability for undistributed earnings135 — — 
Global intangible low-taxed income (GILTI) / Subpart F income13 18 30 
Nextracker related transactions gains115 158 110 
Earnings from partnership47 39 — 
U.S. state taxes10 2 5 
Excess compensation (Section 162(m))15 9 4 
Other(26)2 8 
(Benefit from) provision for income taxes$(206)$124 $92 
A number of countries in which the Company is located allow for tax holidays or provide other tax incentives to attract and retain business. In general, these holidays were secured based on the nature, size and location of the Company’s operations. The aggregate dollar effect on the Company’s income resulting from tax holidays and tax incentives to attract and retain business for the fiscal years ended March 31, 2024, 2023 and 2022 was $20 million, $14 million and $23 million, respectively. For the fiscal year ended March 31, 2024, the effect on basic and diluted earnings per share was $0.05, and the effects on basic and diluted earnings per share during fiscal years 2023 and 2022 were $0.03, and $0.05, respectively. Unless extended or otherwise renegotiated, the Company's existing holidays will expire in various years through the end of fiscal year 2032.
The Company provides a valuation allowance against deferred tax assets that in the Company's estimation are not more likely than not to be realized. During fiscal years 2024, 2023 and 2022, the Company released net valuation allowances totaling $447 million, $6 million and $26 million, respectively. For fiscal year 2024, included in the $447 million net release was a $461 million valuation allowance release related to the Company’s U.S. operations as these amounts were deemed to be more likely than not to be realized. As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The net deferred tax asset before valuation allowance of the Company’s U.S. group totaled $509 million and $701 million as of March 31, 2024 and 2023, respectively, $358 million and $541 million of which relate to tax loss carryforwards generated in prior years. The Company has, until the current year, carried a valuation allowance ($692 million as of March 31, 2023) against the net deferred tax assets of the U.S. group due to a long-term trend of historical losses as well as unpredictability of U.S. taxable income, particularly with regard to its Nextracker subsidiary. This trend represented negative evidence that outweighed positive evidence of taxable income in the U.S. in fiscal years ended March 31, 2023 and 2022. During fiscal year ended March 31, 2024, the Company has experienced a further year of taxable income in the U.S. and successfully divested its Nextracker business in the fourth quarter, providing greater stability in its U.S. profits and giving visibility to continued taxable income in the U.S. This three-year trend of objective and verifiable taxable income, forecasts showing continued taxable income and removal of uncertainty about Flex’s ownership of Nextracker and the contribution of that business to U.S. taxable income, represent, in the three months and fiscal year ended March 31, 2024, positive evidence that outweighed the negative evidence of historical losses and volatility. This positive evidence enabled the Company to conclude that it is more likely than not that additional deferred taxes of $461 million are realizable. It therefore reduced the valuation allowance accordingly.
In addition, various other valuation allowance positions in other jurisdictions were increased or decreased to offset movement in deferred tax positions due to varying factors such as one-time income recognition in loss entities with existing valuation allowances, liquidation of entities with existing valuation allowances, recognition of uncertain tax positions impacting deferred tax assets with existing valuation allowances, foreign exchange impacts on deferred tax balances with existing valuation allowances, and current period losses in legal entities with existing valuation allowance positions. These offsetting
changes in the valuation allowance included an increase of $43 million in the fiscal year ended March 31, 2024 and decreases of $254 million and $69 million in the fiscal years ended March 31, 2023 and 2022, respectively.
Under its territorial tax system, Singapore generally does not tax foreign sourced income until repatriated to Singapore. The Company has included the effects of Singapore's territorial tax system in the rate differential line above. The tax effect of foreign income not repatriated to Singapore for the fiscal years ended March 31, 2024, 2023 and 2022 were zero, $31 million and $105 million, respectively.
The components of deferred income taxes are as follows:
As of March 31,
20242023
(In millions)
Deferred tax liabilities:
Fixed assets$(59)$(63)
Intangible assets(56)(71)
Others(149)(23)
Total deferred tax liabilities(264)(157)
Deferred tax assets:
Fixed assets82 77 
Intangible assets4 5 
Deferred compensation25 27 
Inventory valuation26 24 
Provision for doubtful accounts2 3 
Net operating loss and other carryforwards1,168 1,354 
Tax receivable agreement77 — 
Others184 131 
Total deferred tax assets1,568 1,621 
Valuation allowances(838)(1,371)
Total deferred tax assets, net of valuation allowances730 250 
Net deferred tax asset$466 $93 
The net deferred tax asset is classified as follows:
Long-term asset $644 $164 
Long-term liability(178)(71)
Total$466 $93 
Utilization of the Company's deferred tax assets is limited by the future earnings of the Company in the tax jurisdictions in which such deferred assets arose. As a result, management is uncertain as to when or whether these operations will generate sufficient profit to realize any benefit from the deferred tax assets. The valuation allowance provides a reserve against deferred tax assets that are not more likely than not to be realized by the Company. However, management has determined that it is more likely than not that the Company will realize certain of these benefits and, accordingly, has recognized a deferred tax asset from these benefits. The change in valuation allowance is net of certain increases and decreases to prior year losses and other carryforwards that have no current impact on the tax provision.
The Company has recorded deferred tax assets of approximately $1.2 billion related to tax losses and other carryforwards against which the Company has recorded a valuation allowance for all but $436 million of the deferred tax assets. These tax losses and other carryforwards will expire at various dates as follows:
Expiration dates of deferred tax assets related to operating losses and other carryforwards
Fiscal year(In millions)
2025 - 2030$244 
2031 - 2036157 
2037 and post57 
Indefinite741 
$1,199 
The amount of deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management’s estimates.
The Company does not provide for income taxes on approximately $659 million of undistributed earnings of its subsidiaries which are considered to be indefinitely reinvested outside of Singapore as management has plans for the use of such earnings to fund certain activities outside of Singapore. The estimated amount of the unrecognized deferred tax liability on these undistributed earnings is approximately $77 million. During fiscal year 2024, the Company, as part of its regular process, assessed its cash position in overseas territories relative to the levels needed to manage operations and fund future investment in those territories. Following a sustained improvement in the working capital position in China and a trend of customers near shoring their manufacturing operations, management noted that the current and forecasted cash position in China was in excess of levels required to fund the Company’s business in the country. As a result, in the fourth quarter, management declared a dividend of the equivalent of $100 million to be paid from China. This dividend was subject to withholding tax of $10 million and the distribution from China represented a change in intention to indefinitely reinvest earnings in the country. As a result, a deferred tax liability of $135 million was recorded on the remaining distributable earnings from China of approximately $1.4 billion.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal Year Ended
March 31,
20242023
(In millions)
Balance, beginning of fiscal year$268 $282 
Additions based on tax position related to the current year10 15 
Additions for tax positions of prior years22 8 
Reductions for tax positions of prior years(82)(5)
Reductions related to lapse of applicable statute of limitations(17)(13)
Settlements— (7)
Impact from foreign exchange rates fluctuation(4)(12)
Balance, end of fiscal year$197 $268 
The Company’s unrecognized tax benefits are subject to change over the next twelve months primarily as a result of the expiration of certain statutes of limitations and as audits are settled. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by an additional approximate $24 million within the next twelve months primarily due to potential settlements of various audits and the expiration of certain statutes of limitations.
The Company and its subsidiaries file federal, state, and local income tax returns in multiple jurisdictions around the world. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2008.
Of the $197 million of unrecognized tax benefits at March 31, 2024, $170 million will affect the annual effective tax rate (“ETR”) if the benefits are eventually recognized. The amount that doesn’t impact the ETR relates to positions that would be settled with a tax loss carryforward previously subject to a valuation allowance.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits within the Company’s tax expense. During the fiscal years ended March 31, 2024, 2023 and 2022, the Company recognized interest and penalties of approximately ($2) million, ($1) million and $2 million, respectively. The Company had approximately $13 million, $15 million and $16 million accrued for the payment of interest and penalties as of the fiscal years ended March 31, 2024, 2023, and 2022, respectively.